It’s always an exciting time when a new business is growing. However, one of the most important decisions that a business owner can make during the growth stage is how much new debt to take on. While expansion works in some case, companies that get in over their head too quickly can end up on the wrong side of the debt equation, never to recover, while others are able to right the ship just in time.

Consider the example of Starbucks. Howard Schultz built the U.S. coffeehouse chain into a huge success, turning what had been a freebie in most offices (a cup of coffee) into something that people got used to paying $4 or $5 for every day. Once Schultz stepped down as the CEO, though, the company thought they would spread out, sinking capital into fancier drinks, breakfast sandwich and even selling CDs. This is why the company needed Schultz to come back in 2008, and he had to shut down 900 stores and bring in some machinery upgrades. He had to take the company back to its core. Luckily the company had already grown to more than 20,000 locations around the world before they hit this slump.

Commercial real estate loan calculator

Your small business is not likely to be as resilient as the giant that Starbucks had become, and all it would take is one unwisely chosen loan to send you under if sales go in the tank for you. This calculator takes a look at your yearly income and your existing monthly obligations and calculates the effect of different loan amounts on your debt service coverage ratio. This ratio measures your ability to pay your debts using your existing income. If the ratio is 1.0, that means that you are exactly breaking even — your revenues are paying for your expenses and debts, but there isn’t a dime left over. Most traditional lenders won’t give you a commercial loan if your debt service coverage ratio will be less than 1.25 after adding your new loan payment to the calculation.

What if your debt service coverage ratio is lower than 1.25? What if it’s lower than 1.0 after that loan? Then it’s a matter of your outside income. Some private lenders will still provide funding if your ratio is below 1.25, or even below 1.0. At that point the lender will look to see if you have a track record of other income that can go toward making the loan payments each month.

Try Our Commercial Loan Calculator – Use this calculator to estimate your debt service coverage with a new commercial loan.